Most debts are eligible for a discharge under Chapter 7; however, there are some debts that the Bankruptcy Code exempts from a bankruptcy discharge. The most well-known types of debts that are not dischargeable under Chapter 7 are student loans, taxes and domestic support payments. Even though most people believe this to be true, it is not necessarily the case.
Taxes and student loans are typically non-dischargeable debts in bankruptcy, but there are exceptions. If a debtor meets the requirements prescribed by the Bankruptcy Code, they may be able to discharge a student loan or personal taxes. However, it does require the assistance of an experienced bankruptcy attorney who is well versed in the Bankruptcy Code and who understands the requirements for discharging these types of debts.
Domestic support payments (i.e. child support and alimony) are never dischargeable in Chapter 7 or under any other chapter of bankruptcy. As with some other debts that are never dischargeable in bankruptcy, Congress felt that a debtor should not have the ability to discharge a financial obligation to their child or ex-spouse through bankruptcy. Below is a list of other debts that are never dischargeable through a Chapter 7 bankruptcy.
Debts that Are Not Discharged in a Chapter 7 Bankruptcy Case
- Most taxes owed to a federal, state or local taxing authority. (Note: if the debtor meets certain requirements, they may be able to discharge taxes under certain circumstances.)
- Most student loans (note: if the debtor meets certain requirements, they may be able to discharge student loans under certain circumstances).
- Domestic support obligations: child support and alimony are never dischargeable in Chapter 7.
- Any debt that the debtor did not list on their schedules. If the debtor fails to list a debt, it will not be subject to a discharge. An exemption may apply if the creditor had actual notice or knowledge of the bankruptcy filing.
- Credit or debt that was obtained under false pretenses or actual fraud.
- Debt that arises from larceny, embezzlement or fraud while acting in a fiduciary capacity.
- Debt that arises from a willful or malicious injury by the debtor to another party or another party’s property.
- Debt is for a fine, penalty or forfeiture payable to and for the benefit of a governmental unit, and is not compensation for actual pecuniary loss, other than a tax penalty.
- A debt that arises from the death or personal injury caused by the debtor’s operation of a motor vehicle, vessel or aircraft if such an operation was unlawful because the debtor was intoxicated from using alcohol, a drug or another substance.
- Debts provided in any final judgment, unreviewable order, or consent order or decree entered in any court of the United States or of any state, issued by a Federal depository institutions regulatory agency, or contained in any settlement agreement entered into by the debtor, arising from any act of fraud or defalcation while acting in a fiduciary capacity committed with respect to any depository institution or insured credit union.
- Debt arising from the malicious or reckless failure to fulfill any commitment by the debtor to a Federal depository institutions regulatory agency to maintain the capital of an insured depository institution.
- The payment of restitution under Title 18 of the United States Code.
- Fines or penalties under Federal election laws.
- Debts to a spouse, former spouse or child of the debtor (other than domestic support obligations) that is incurred by the debtor in the course of a divorce or separation, or in connection with a separation agreement, divorce decree or other order of a court of record, or a determination made in accordance with State or territorial law by a governmental unit.
- For a fee or assessment that becomes due and payable after the order for relief to a membership association with respect to the debtor’s interest in a unit that has condominium ownership, in a share of a cooperative corporation, or a lot in a homeowners' association, for as long as the debtor or the trustee has a legal, equitable or possessory ownership interest in such unit, such corporation or such lot.
As you can see, most of the above debts are not the typical debts owed by most debtors who file for bankruptcy relief. Most debtors owe debts that are dischargeable under Chapter 7, with the possible exception of student loans, domestic support obligations and taxes. Debts such as medical expenses, credit cards, personal loans and cash advance loans are dischargeable under Chapter 7 bankruptcy.
Chapter 7 bankruptcy helps debtors find relief from debts that they are unable to pay. It provides a fresh start so that the debtor can recover from a financial crisis that has left the debtor without the money to pay for their living expenses and unsecured debts. In order to determine if a debt is dischargeable or non-dischargeable, you should consult with an experienced bankruptcy attorney prior to filing a bankruptcy case under any chapter of the Bankruptcy Code.